Government proposals to introduce a Saving Gateway for low-earner families could take money away fro...
Government proposals to introduce a Saving Gateway for low-earner families could take money away from Isas and stakeholder pensions because of the proposed incentives attached to these new products, says a new report.
Published by the Institute for Fiscal Studies - called The Saving Gateway and the Child Trust Fund: Is Asset-Based Welfare 'Well Fair' - the report responds to proposals released by Gordon Brown in April for a Saving Gateway and Child Trust, however, the report suggests the government low-earner target market will not be reached under existing proposals.
Sketchy details to introduce the Saving Gateway (SG) and the Child Trust (CT) - which have already been dubbed as 'baby bonds' - were released by Brown, however, the IFS report says a more targeted policy, on who is eligible for the Saving Gateway and who will receive it, needs to be introduced to single out those in the low-earner bracket who can gain from saving incentives.
Those in the target market who are reached, says the IFS, will make the concept expensive for the government under existing proposals, says the IFS, because they will not be creating new savings.
"New reforms proposed by the government come at the costs of complexity and uncertainty. Individuals, such as those in the stakeholder pension target group, may want to re-evaluate whether they should be saving in a pension scheme, since, if they save in a liquid form and become eligible for a Saving Gateway, then these savings might receive a government match," says the IFS report.
Concerns have also been voiced about proposals for the Child Trust - which gives income-tested low-earners with a cash lump sum in special accounts until the child reach adulthood - as it would "severely reduce the attractiveness of saving in an Isa for families with children".
Authors of the report have criticized the government's motivations and suggest it might be a more obvious policy to give assets to all young adults rather than selected babies if the sole purpose is that all young people have financial assets when embarking into adulthood.
If the aim is to provide money with which the low-earner family can put their child through higher education, says the IFS, it might be wiser to reintroduce maintenance grants as current proposals leave the assets open to abuse once the child reaches the age when he/she can access them.
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